Distinction between agents, brokers and sponsors of group policies
Classes of insurance that agents can sell
Agency contract and agent remuneration
Suspension and termination of the agency
On October 25 2013 the National Council on Private Insurance (CNSP) issued Resolution 297, which regulates insurance agency in Brazil.
Before the resolution, insurance agency was not well understood by consumers, which often generated litigation and discussions with consumer protection entities. It was common for entities acting as sponsors in group insurance policies and insurance brokers to act as agents for insurers under operational agreements, sometimes with aggressive sales targets – particularly in the retail industry.
With the rise of consumer litigation involving insurance purchased in retail stores (particularly extended warranty insurance), the Superintendence of Private Insurance (SUSEP) initiated discussions to create a legal framework that would govern insurance agency and the retail industry's sale of insurance.
An 'insurance agent' is defined as the legal entity obliged to promote the sale of insurance on behalf of an insurer, on a non-sporadic basis and without dependency.
Before Resolution 297 was enacted, insurance agents were often incorporated as brokers. However, their activities were always distinct. The fundamental distinctions between an agent and a broker are as follows:
- Insurance brokers are autonomous and independent, having no relationship with insurers. Brokers represent the insured party in the purchase of insurance.
- Insurance agents represent an insurer (sometimes more than one) in the sale of its insurance products and in all administrative measures necessary for the proper application of the insurance agreement.
According to the new resolution, the relationship between insurance agents and consumers may be intermediated by a broker; however, the insurance agent is prevented from acting as a broker.
Before the resolution, it was also common practice for retail stores and other sales channels to promote the sale of group insurance policies, working as sponsors under these policies. This concept has not been removed, but the way in which retailers can promote sales as sponsors has changed, to the extent that they may now be considered insurance agents. However, insurance agents cannot act as sponsors of group policies (except in cases of 'true sponsorship', such as when they sponsor a group life policy on behalf of their own employees).
The new resolution aims to provide more information to consumers and to create a better sales process, so that they are well informed that agents represent insurers in the offering of insurance, as if it were a direct sale.
Further, the regulation contains a number of consumer protection rules, including:
- providing clear, informative materials;
- providing cancellation rights at no cost within seven days of purchasing insurance;
- offering different contracts for the purchased product and the insurance; and
- prohibiting tie-in sales.
SUSEP can request insurance agents to provide proof that they are following these consumer protection rules, if deemed appropriate.
The insurers must appoint a director supervise the insurance agents. The insurer must also notify SUSEP annually of who its insurance agents are and of any updates, suspensions or contractual terminations.
SUSEP may fine an insurance agent for a number of reasons, including:
- advertising without prior consent of the insurer;
- offering discounts or making sales conditional on the purchase of insurance;
- charging fees to consumers other than the insurance premium; and
- not fully transferring the insurance premium or indemnification to the insurer or consumer.
Insurance agents may sell only some classes of insurance, including:
- miscellaneous insurance;
- extended warranty for auto and goods in general insurance;
- funeral insurance;
- travel insurance;
- credit life insurance;
- unemployment and loss of income insurance;
- random events insurance;
- animal insurance; and
- micro-insurance for persons, damages and complementary pension fund.
However, if the insurance agent belongs to the same economic group as the insurer, it can sell any type of insurance sold by the insurer.
There must be a written contract between the agent and the insurer. The contract will establish the agent's remuneration, which must be included in the actuarial technical note that the insurer provides to SUSEP. The criteria for remuneration due to an agent must be clear, detailed and comprehensive. The remuneration cannot be deemed an excessive advantage for the insurance buyer. Further, the contract will determine the scope of activity with regard to, for example, the geographical limits, the manner of the selling operation and exclusivity. SUSEP will have full access to the insurance agent's premises and to the contract.
The agency contract can be suspended or terminated in a number of cases, in accordance with statutory or contractual provisions.
SUSEP may suspend agents from selling insurance in the following cases:
- excessive advantage against consumers;
- inadequate offering of insurance policies;
- strong evidence of irregularities; and
- lack of adequate internal controls by the insurer.
For further information on this topic please contact Marta Viegas or Thiago Ramos at TozziniFreire Advogados by telephone (+55 11 50 86 50 00), fax (+55 11 50 86 55 55) or email (firstname.lastname@example.org or email@example.com). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.